Using Crowdfunding as a Means for Growth. 3 Secrets Revealed
Crowdfunding is not a new concept for raising money, but it is not as popular as it ought to be among startups looking to scale their business.
Few years ago, it was effective in raising money for the Veronica Mars movie, and since then, other ‘cancelled’ TV shows have used crowdfunded projects to grow their capital. If you are still struggling with finances to take your startup to the next level, consider these crowdfunding techniques.
Basics of crowdfunding
Before with dig deeper, let’s briefly discuss how crowdfunding works. In summary, this is the process of raising money by persuading individuals to give a small donation £5, £7 or £10 to kickstart a project.
Most crowdfunding is done online through specialised platforms like Kickstarter. So, if your idea is a good one and people like it, you can appeal to them to pledge a stake in your business (different from shares). In the case of Veronica Mars, fans of the TV show who loved the series were only too happy to take it to the silver screen.
You can apply the same level of success to scale your business. If not completely, but a significant percentage of the capital.
Here are some ways to do so:
- Donation-based crowdfunding
This is probably the most common crowdfunding technique used. Donations from family, friends and members of your community who are interested in your cause can help during the growth stage.
While online donations can help your business grow, they sometimes come with certain legal issues. To avoid this, ensure you state the terms and conditions in writing; cover all basics to avoid legal conflicts when your business takes off. Whether you are building a new app or scaling a minimum viable product, Kickstarter or GoFundMe can be a good start.
- Equity-based crowdfunding
Angel investors and venture capitalists are also a great way to raise capital for your business. However, this is not easy because there are several hurdles to jump to pique their interest. For one, a killer pitch deck is important. Make your financial plan and projections are well prepared.
Another thing to consider with equity-based funding is the ownership. Some investors may want to assume full control, so you’ll have to define the rules and compliance requirements before you commit to an agreement. Popular angel investors can also give you marketing exposure for your business.
- Debt-Based Crowdfunding
With debt-based crowdfunding, you can ask for resources and support from other backers. In return, you will agree to pay back the principal and interest when your business takes off. This option is ideal for startups because it’s like obtaining a traditional bank loan but with more flexible options and better interest rates.
Always take note of your financial position. You not only have your customers to answer to, but public investors who expect good ROI at the end of the day. When paying back, work out a procedure that leaves every party satisfied.
Are you thinking of scaling your business? Start with a small crowdfunding project and see how far it takes you.